How to Get Pre-Approved for a Mortgage

A mortgage loan preapproval gets your house-hunting started on the right foot. It tells you how much you can afford to spend on a home, and it gives you confidence going into negotiations.

In a competitive housing market, preapproval can put you ahead of other home buyers. To sellers and selling agents, a mortgage loan preapproval signals that you are financially prepared to purchase a home. It means that you are serious about the process. When the right opportunity presents itself, having a preapproval in hand means that you can act more quickly.

What is the process for an application? How can you prepare? How long does mortgage preapproval take? We answer all these questions and more below.

What is Mortgage Preapproval?

A mortgage preapproval is an offer from a mortgage lender showing the mortgage amount you could qualify for, based on a preliminary review of your financial information. It is not a final loan approval. That requires additional documentation and a more complete application process. Preapproval serves as a strong indication that you are a sound financial risk.

Note that a preapproval is not the same as pre-qualification. Pre-qualification is a quick estimate that is often used as a marketing tactic to attract new customers to apply for credit products. In contrast, mortgage preapproval involves documentation and a credit check, giving it more credibility.

How to Get Pre-Approved for a Mortgage

Preparation is key to a successful mortgage preapproval application. Here are steps you can follow to get through the process smoothly:

Request a Credit Report

Your credit score plays a central role in determining your eligibility for a mortgage. I will also factor into the likelihood that you will get a good preapproval amount. It also affects your loan terms, including the interest rate.

Request your credit report from all of the three major credit bureaus (Equifax, Experian, and TransUnion). Most lenders look for a credit score of at least 620 for conventional mortgages. However, the higher your credit score is, the better. In addition to your credit score, look for errors on your credit reports, dispute those errors, and ensure they are corrected.

If your credit score is low, you can raise it by:

• Paying down your existing debt.
• Maintaining your old credit cards even if you do not use them.
• Avoiding new debt.
• Paying your bills on time.
• Using no more than 30% of your available credit.

Collect Your Financial Documents

For a mortgage loan preapproval, lenders will want to verify your income, assets, and debts. Locate the following documents and have them ready for submission:

• Proof of income (pay stubs, W-2s, or 1099s).
• Tax returns for at least the last 2 years.
• Bank statements for all your accounts.
• Proof of assets such as retirement accounts, deeds for other properties, investments, and insurance policies.
• Government-issued photo ID
• Information about existing debt, such as credit cards, student loans, and car loans.

If you are self-employed, you will likely be asked for additional documents such as profit and loss statements and 1099 forms. The more information you can assemble beforehand, the better.

Find a Mortgage Lender

Take the time to shop around for a lender you feel you can work with. Some home buyers prefer to go with their existing financial institution. However, since you are not committed at that point, it does not hurt to compare interest rates, closing costs, loan programs, and customer service reviews.

It is perfectly acceptable to get several quotes. Although multiple hard inquiries on your credit report can harm your credit score. Credit bureaus understand that this can happen when someone is shopping around for a good loan rate. As long as these requests are made within a reasonable time window (1 to 3 months), they generally treat multiple inquiries as the same request.

Submit Your Application

The last step in the mortgage preapproval process is to complete a preapproval application, which can usually be done online, by phone, or in person. This application will ask for:

• Personal and contact information.
• Employment and income details.
• Asset and debt information.
• Consent to run a hard credit check.

The lender will then request a credit report, verify and review your information, and calculate your debt-to-income ratio. If your overall credit profile meets their requirements, they will issue you a mortgage preapproval letter. Now, you can go house hunting with confidence!

What Is a Mortgage Preapproval Letter?

A mortgage preapproval letter is a formal document stating how much you are qualified to borrow based on your financial information and credit check. The letter typically includes the loan amount you are approved for, the loan type (conventional, FHA, VA, etc.), an estimated mortgage rate, and additional conditions for final approval, such as a home appraisal. The letter will also specify an expiration date, which is usually 60 to 90 days from the date it is issued.

How Long Does Mortgage Preapproval Take?

Mortgage preapproval can take anywhere from 1 to 5 business days. The length of the process depends on how prepared you are with documentation and on the lender’s internal processes. For some borrowers, it could take longer. For example, if you are self-employed or you have a complex financial situation, a lender might need more time to issue a pre-approval letter.

Mortgage Preapproval

Getting pre-approved for a mortgage is worth the effort. The process is straightforward, especially if you prepare in advance and your credit is in good shape. It helps firm up your budget, shows sellers that you are a serious buyer, and makes it possible for you to act quickly when you find the house you want to make an offer on.